Fertilizer Markets and Finance

BASF SE (BAS) agreed to sell the bulk of its nitrogen-fertilizer assets to OAO EuroChem in a deal valued at 700 million euros ($947 million), selecting the Russian crop nutrient supplier over Norway’s Yara International ASA. (YAR)

BASF, based in Ludwigshafen, Germany, expects to close the deal by the first quarter, it said in a statement today. About 330 workers at a site in Antwerp, Belgium, will move to EuroChem, as will 190 employees at a French joint venture. The transaction marks the third-largest acquisition of an agricultural chemicals company announced this year.

EuroChem is gaining access to the heart of BASF’s integrated Verbund chemical complex in Belgium that was built to concentrate on fertilizer. EuroChem, which defeated rival interest from Orascom Construction Industries of Egypt, has access to cheap natural gas for the production of ammonia, which can be shipped to the plants for processing.

“BASF is pushing forward with its strategy of exiting more cyclical businesses,” said Heiko Feber, an analyst at Bankhaus Lampe, who has a buy recommendation on the stock. “It’s a good thing for them that they’re selling it.”

EuroChem’s success in the bid was probably caused by a combination of price and cartel issues, Thor Giaever, Yara’s head of investor relations, said in a telephone interview. While Yara’s bid was “close” to EuroChem’s offer, the possibility of antitrust issues may have been greater, he said.

‘Good Price’

The assets, put up for sale in February, can produce as much as 2.5 million metric tons of product, are profitable and generate annual sales of about 500 million euros, the company has said. Christian Faitz, an analyst at Macquarie, said BASF got “a good price for that amount of production capacity.”

The transaction is the third-largest announced in the industry so far this year, after Cargill Inc.’s sale of its majority stake in fertilizer maker Mosaic Co., and Vale SA (VALE5) taking full control of its Vale Fertilizantes SA unit.

Morgan Stanley advised BASF on the transaction and Barclays Capital advised EuroChem.

EuroChem, owned by billionaire Andrey Melnichenko, aims to invest proceeds from rising soil-nutrient prices to expand outside its domestic market and increase sales of more expensive products. Prices for EuroChem’s products rose as much as 75 percent in the second quarter from a year earlier, according to its website.

K+S Angle

The sale will have a knock-on effect on K+S AG, which has a marketing agreement with BASF for nitrogen fertilizer

“We take note of the decision of BASF,” said Michael Wudonig, a K+S spokesman. He declined to say if EuroChem had approached K+S about buying the company’s nitrogen distribution business based in Mannheim, Germany, across the Rhine river from BASF’s headquarters, and said K+S was considering “all options” for the unit.

Supply contracts with BASF are for an indefinite period and may be terminated at the end of 2014 at the earliest, Wudonig said. The sale will not initially affect operations, he added.

“EuroChem has a stake in K+S already so it wouldn’t be a surprise if they were to work with them on the delivery contracts that go until 2014,” said Bankhaus Lampe’s Feber.

Meritus Trust Company Ltd., a company controlled by Melnichenko, held a 9.88 percent stake in K+S as of July 12, according to a stock exchange filing.

Consolidation in the fertilizer industry is accelerating as rising food prices spur farmers to plant more crops, boosting demand for soil nutrients. Between 2006 and 2008, there were 148 acquisitions of agricultural companies completed globally for a total value of $10.45 billion. The average deal size disclosed was $107.7 million, with the acquirer paying 0.77 times the revenue of the target company. Since 2009, deal size has almost tripled to a total of $29.57 billion, with an average size of $384 million or 1.33 times revenue.

To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net; Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net